gtri-warns-of-trade-data-fallout-from-prolonged-red-sea-crisis-in-upcoming-fiscal-year

According to a report by the economic think tank GTRI, the Red Sea issue will have a significant negative impact on trade volumes in 2024 due to the attacks that are getting worse every day and the lack of an apparent resolution in sight.

 

As per the findings of the Global Trade Research Initiative (GTRI), there would be further disruptions to global value chains, margin reduction, and the inability to export many low-margin products from their current locations due to rising shipping and insurance costs and delayed shipments.

 

It further pointed out that nations in Asia, Africa, and Europe will experience the most severe disruption in almost every industry.

 

The disruption, it was reported, is having a major effect on Indian trade, particularly with the Middle East, Africa, and Europe. Any interruption in this area poses significant threats to India's economy and security, as the country is strongly dependent on the Bab-el-Mandeb Strait for trade with important regions and the importation of LNG and crude oil.

 

The Suez Canal most likely handled 65 percent of India's 105 billion USD imports of crude oil in FY2023, coming from Saudi Arabia, Iraq, and other nations.

It estimated that over 50% of imports and 60% of exports, or USD 113 billion, may have gone through this channel for all merchandise trade with Europe and North Africa.

 

"With escalating everyday attacks and no end in sight, the Red Sea crisis will adversely impact trade volumes in substantial ways in 2024," the research stated.

According to the report, this war is causing higher insurance premiums (15–20 percent), delays caused by rerouting (up to 20 days longer), and possible cargo loss from piracy and attacks. Shipping expenses are also expected to grow by 40–60 percent.

 

"Confectionery companies are hit by high cocoa prices and shortages due to late deliveries from Africa, reducing profits. The textile and leather industries, which operate on thin margins, are renegotiating shipping costs with buyers, impacting earnings. Car manufacturers are using different shipping paths to avoid delays," GTRI Founder Ajay Srivastav said.

 

On October 19, 2023, the Houthi movement in Yemen, which has been backed by Iran, commenced attacks on civilian-operated cargo ships close to the Yemeni shore, sparking the start of the Red Sea crisis.

 

Although several of the vessels targeted appeared to have no connection to Israel, the Houthis have targeted any shipping that is thought to be associated with the nation.

 

According to the report, this situation is part of a broader proxy conflict involving the United States, Iran, Hamas, and Israel. In March 2024, the crisis was in its fifth month.

 

It suggested the government diversify its sources of crude oil and LNG, explore alternative trade routes to reduce dependency on the conflict-prone Red Sea passage, and rely on ports outside conflict zones, like Oman and Djibouti, for transshipment and regional trade.

 

It also asked for financial support and insurance schemes for Indian companies affected by trade disruptions.

 

It added that the crisis underscores how geopolitical conflicts can swiftly destabilise global shipping routes, leading to increased shipping costs and significant delays across multiple sectors and regions.

 

'"The crisis also underscores the importance of exploring alternative maritime and land-based trade routes. This includes potential investment in the Northern Sea Route and expanded land transport infrastructure. The India-Middle East-Europe Economic Corridor (IMEC) becomes important in this context," Srivastava said.

 

The IMEC project aims to connect Europe, the Middle East, and Asia by means of enhanced energy infrastructure, communication networks, and transportation systems, so establishing an extensive economic corridor.

 

It is divided into two primary rail, road, and marine routes: the East Corridor connects India to the Arabian Gulf. Europe and the Gulf are connected by the Northern Corridor.